Queensland, Hunter gas link should lower prices

Several years after it was first proposed, tenders are to be called for a gas pipeline to link the Hunter with Queensland, which will challenge AGL's grip on the local market and pave the way for increased price competition.

The Hunter has among the most expensive gas in the country because it is at the end of the line for gas sourced from either the Cooper Basin in central Australia, which is transported via the Moomba pipeline, or from Bass Strait, which travels via the eastern gas pipeline.

This has set the scene for a renewed push to build a pipeline to access Queensland gas, particularly with the gridlock that has emerged in recent months over the development of local coal seam gas reserves.

In 2005, a group of Newcastle businessmen banded together to launch a pipeline following earlier work by the NSW government that demonstrated the economics of a link. It received a boost from subsequent plans by Queensland Gas to build a gas-fired power station in the Hunter, although these plans were shelved after British Gas bought Queensland Gas.

Initially costed by the NSW government at $300 million, by 2005 the cost had escalated to $500 million and is now put at about $1 billion.

The surge in pipe costs as a result of the development of several large gas export projects in Queensland threatened the viability of the proposal for a time, although prices have fallen more recently, paving the way for the proposal to be revived. The decline in steel costs has been partly offset by higher labour costs, however.

The forecast rise in east coast gas prices, with AGL pricing gas at $9 a gigajoule from 2016, up from about $6 now, has prompted large users to revive the proposal, which received NSW government approval in 2009.

There are questions about the prospective level of demand, since the looming surge in gas prices is forcing large energy consumers to scale back consumption.

It is believed a large US bottlemaker is studying plans to build a plant in Newcastle, but without access to cheaper gas it may not pursue the investment, while another potential user would be Mittal Cable, which is also planning a plant in the area.

The pipeline would challenge AGL's dominance in the local market, which will be consolidated as a result of its planned pipeline linking its own gas reserves at Gloucester to Newcastle, along with plans to build a gas storage unit at Newcastle.

AGL is also believed to be a likely buyer of the Vales Point power station and the associated Colongra gas peaker power plant.